Category Archives: Business and Economy

Try to run an online world and a company town

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Would it be easier to run Twitter or build and oversee a company town? Elon Musk is exploring constructing a town in Texas for employees of his multiple firms:

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In meetings with landowners and real-estate agents, Mr. Musk and employees of his companies have described his vision as a sort of Texas utopia along the Colorado River, where his employees could live and work.

Executives at the Boring Co., Mr. Musk’s tunnel operation, have discussed and researched incorporating the town in Bastrop County, about 35 miles from Austin, which would allow Mr. Musk to set some regulations in his own municipality and expedite his plans, according to people familiar with Mr. Musk’s projects.

They say Mr. Musk and his top executives want his Austin-area employees, including workers at Boring, electric-car maker Tesla Inc. and space and exploration company SpaceX, to be able to live in new homes with below-market rents…

As of last year, Boring employees could apply for a home with rents starting at about $800 a month for a two- or three-bedroom, according to an advertisement for employees viewed by the Journal and people familiar with the plans. If an employee leaves or is fired, he or she would have to vacate the house within 30 days, those people said.

I am intrigued by the contrast between online and offline activity. I have argued before that the two realms are more linked than people think. Here, both the business activity spans these two realms as might the world of employees and visitors.

What might the fate be of this proposed community? On one hand, if the primary goal is to provide cheaper housing for employees, perhaps such a community could be really helpful. Since housing is a significant portion of household costs, providing cheaper good housing could help attract and retain employees. Another bonus is that employees are close to work and might be willing to work more hours.

On the other hand, when has a company town worked out well in the long-term? What regulations does Musk want to implement and what are the penalties for not adhering to them or disagreeing with them? Even with reduced housing prices, how will employees feel about always being tied to work?

My suspicion is that this will not work out as intended. Developing a community is no easy task and the interaction between work life and community life is hard to manage.

Remembering the frenzy and promise regarding Amazon HQ2

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Amazon announced part of their HQ2 is coming along on schedule but the full project will soon go on pause:

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John Schoettler, Amazon’s real estate head, said in a statement the company is pushing out the groundbreaking of PenPlace, the second phase of the sprawling northern Virginia campus. The first phase of the campus, known as Metropolitan Park, is expected to open on time this June and will be occupied by 8,000 employees.

The move comes as Amazon CEO Andy Jassy has taken steps to curtail expenses across the company in the face of slowing revenue and a gloomy economic outlook. That’s led to the company announcing the largest layoffs in its history, totaling more than 18,000 employees, while also reevaluating its real estate portfolio and sunsetting some projects…

PenPlace encompasses three 22-story office buildings, more than 100,000 square feet of retail space and a 350-foot-tall tower, called “The Helix.” The development is larger than Metropolitan Park, which sits south of PenPlace, and includes two additional, 22-story office towers, as well as a mixed-use site featuring retail, restaurants and green spaces.

Amazon selected Arlington as the site of HQ2, in addition to the Long Island City neighborhood of Queens, New York, as part of a closely watched, splashy search for a second headquarters that kicked off in 2017. The company announced in 2019 it would halt plans to build its new headquarters in New York after it faced pushback from local activists and city council leaders.

Numerous communities across the United States submitted proposals to host this second headquarters and the company sought tax breaks. The promise of the new headquarters involved at least these two big features: the status of Amazon in your community plus the thousands of jobs in a corporate headquarters.

With the changes in the world, will these promises pan out for Arlington, Virginia and the D.C. metro area? It sounds like at least 8,000 employees will be onsite. However, the headquarters may never be as big as once envisioned. Does Amazon have the same status in 2023 that it did in 2017? This include everything from its financial outlook to its recent layoffs to changes in the everyday Amazon experience for customers.

On the whole, I would guess local leaders will still pitch this as a big win. We got Amazon and all these jobs (and implying that others did not). The long-term effects might be less clear, particularly if tax breaks for Amazon and opportunity costs and the longer-term fortunes of the company are factored in.

The suburbs as the perfect places for drone deliveries

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Where might drones make deliveries? One project in Texas suggests the suburbs make a lot of sense for such deliveries:

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Flytrex, which specializes in on-demand, ultrafast delivery for food and retail, is bringing food and grocery orders via drone to front and backyards.

According to a release, the service will be based in Granbury, in a partnership with restaurant chain Brinker International, home of Chili’s Grill & Bar, Maggiano’s Little Italy, and two virtual brands: It’s Just Wings and Maggiano’s Italian Classics.

The service is operating in cooperation with longtime partner Causey Aviation Unmanned under a newly granted Federal Aviation Administration (FAA) waiver allowing a delivery radius of one nautical mile – reaching thousands of potential homes. Eligible households can order food via the Flytrex app.

Their focus is on the suburbs, where on-demand delivery has previously been viewed as commercially unviable, since traditional couriers can make only two deliveries per hour in such areas. They have a video showing a drone at work on YouTube.

Granbury is a small town of just over 11,000 residents roughly 30 miles southwest of Fort Worth and on the edge of the Dallas metropolitan area.

More broadly, it is interesting to note that the population densities of Granbury and the suburbs are what might make delivery by drone viable. Americans tend to like suburbs and driving. But, this is not as good for delivering food or other items. The same kind of space Americans like for their suburban homes does not work well with quick deliveries.

How many deliveries can drones make in an hour compared to vehicles? Are there also advantages to suburban deliveries from not having to encounter many tall buildings or obstacles?

If drones are better for suburban deliveries, are suburbanites open to drones flying above their homes to bring them things they have ordered? Suburbanites also like a connection to nature and drones may not provide that if they are flying or they can be heard above homes. The same drones that enable a consumer lifestyle do not necessarily fit with an image of quiet suburban properties.

Max Weber, American capitalism, and betting on weather

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In having a class recently read several chapters of Max Weber’s The Protestant Ethic and the Spirit of Capitalism, I was struck by one of the conclusions:

In the field of its highest development, in the United States, the pursuit of wealth, stripped of its religious and ethical meaning, tends to become associated with purely mundane passions, which often actually give it the character of sport.

According to Weber, by the early 1900s the practice of capitalism in the United States was taking on “the character of sport.”

How much more might this be true today? I then read a story about betting on the weather is taking off:

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Weather betting emerged and gained popularity during the pandemic.

“When the pandemic hit and sports shut down in March, most people will remember the NCAA tournament was canceled and within a day virtually everything shut down. There was nothing to bet on. The sports world naturally shut down and sports books were looking for something to attract customers. One of the popular things that emerged was betting on Russian table tennis and another was betting on the weather,” says Holden…

“There will be a proposition like, ‘Will there be rain on this day?’ and then individuals can select yes or no. Much like in over under betting for sports, the bookmaker sets a line where the total points can either go over or under and the better selects which will occur.”

Betting laws are strict in the U.S. and at the moment, weather betting is not regulated. However, it is allowed in places like Canada where sportsbooks are taking bets on the weather.

Some might say that betting on the weather is just another opportunity for gamblers to try to make money and for those in the gambling industry to make money. Following the quote from Weber above, perhaps it is just another outworking of capitalism in the United States. Why not make it like a sport? Why not try to generate money off the weather?

More people working from home + smaller corporate offices = more coworking spaces?

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Are recent trends coming together to make coworking spaces more popular? At least a few people think so:

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A distinct growth sector of the suburban office market, coworking has become a bastion of those downsizing from corporate space, fleeing the congestion of the city, or escaping the domestic distractions of working from home…

He said the New Jersey site opened at that Bell Works in March 2016 with 2,800 square feet. But as the popularity and future trending of coworking became clear, construction began on a 25,000-square-foot version elsewhere in the building — just before the pandemic.

Previously, the concept had been based on a desire in the market for flexibility and a better work-life balance. But the pandemic really hit the gas pedal for coworking…

While coworking sites already make up 7% of total office space, that amount is projected to reach 30% by 2030, she said.

Hauser, whose sister firm Workplace Studio also designs coworking spaces for others, said there are five elements that define coworking: flexible desks, meeting rooms, a sense of community, a community manager, and a source for economic development.

The transformation of office space continues.

One other factor hinted at in the experiences described in the article is this: a cool factor. The ability to access space in an interesting setting – such as the revamped Bell Works site in Hoffman Estates – with on-campus amenities is fun. Setting up coworking space in a quiet strip mall in a sleepy community would be less attractive. Being around energy and excitement helps make the the flexible workspace experience interesting.

I would be interested to know how much coworking space might emerge compared to the corporate office downsizing that might happen in the next few years. What percent will coworking occupy compared to the loss of traditional office space?

Proposed Illinois legislation would not allow communities to offer tax breaks to entice firms in other Illinois communities to move

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Companies can play communities off each other to see who is willing to offer tax breaks and other perks for moving to a specific municipality. A new proposed law in Illinois would aim to stop this practice among Illinois communities:

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It is long past time for Springfield to take municipal cronyism off the table, permanently. One of us, state Rep. Joe Sosnowski, R-Rockford, has introduced legislation in Springfield to that effect.The Local Government Business Anti-Poaching Act, HB0211, would prohibit local governments from offering special favors to Illinois businesses in exchange for relocating to their communities. It would end business incentives from politicians spending taxpayer dollars. It requires that businesses relocate based solely on their evaluation of a location and their ability to serve their customers with better prices, products and services rather than taxpayer funded special deals.Under this legislation, Illinois lawmakers and businesses would both refocus their energies on the state’s economic, education, law enforcement and infrastructure policies to put the state’s economy to work for everyone, not just the privileged few.Anti-poaching legislation will make Illinois’ economy as competitive as any state in the country, all year round.

My first thought in reading this: won’t Illinois companies then seek communities just over the border or in other communities if they cannot find better deals in Illinois?

A related thought: a municipal tax breaks seen as part of a freer market where companies and communities can compete for jobs, economic growth, profits, and more? If so, is an anti-poaching law limiting competition?

This may get into too many details but I wonder how the state or others might differentiate between moving because of a nice financial package and doing it solely for business reasons. There cannot be an announced deal in place? Are there penalties for Illinois communities who make offers and companies who ask for them or accept them?

Of changing grocery store markets and food abundance or food deserts

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Three decades ago, the Chicago area grocery market was very different:

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For years, Chicago was largely a two-grocery town: as recently as the late 1990s, Jewel and its No. 2 rival at the time, Dominick’s, controlled two-thirds of the local grocery market.

Times have changed:

But the grocery landscape in 2022 is vastly different. Dominick’s has been gone for nearly a decade, while Jewel and 21st-century rival Mariano’s face increased competition from major retailers such as Walmart, Costco and Amazon Fresh as well as specialty grocers, including Trader Joe’s and the Amazon-owned Whole Foods.

Jewel is still the most-commonly cited grocery-shopping destination for Chicago-area families, according to Nielsen data, but Aldi is nipping at its heels, having transformed itself from the stock-up store of the 1990s. Throw in a handful of online delivery startups that popped up during the pandemic and shoppers have more options than ever, squeezing Jewel from all sides.

Yet, newer grocery stores that once signaled hope are changing locations too:

The Whole Foods that opened in Englewood six years ago to live music, TV-ready politicians and out-the-door lines will close Sunday with little fanfare…

The city spent $10.7 million to subsidize the construction of the shopping center in which the store is located. When Whole Foods announced the 832 W. 63rd St. location’s closure in April, local activists said they felt betrayed, adding that the shuttering would limit access to fresh and healthy food in the neighborhood.

The company closed five other stores across the country “to position Whole Foods Market for long-term success” at the time, including a location near DePaul. It also opened an almost 66,000-square foot location in the Near North neighborhood the same week.

Few grocery options remain in the neighborhood. The handful of grocery stores remaining include a location for low-budget grocer Aldi close by and the smaller “Go Green Community Fresh Market” run by the nonprofit Inner-City Muslim Action Network. Another nearby Aldi in Auburn Gresham abruptly closed in June.

This highlights how much change can come to an essential market in a relatively short amount of time. New actors, new methods, new contexts.

The issue of food deserts was commonly discussed not too long ago but is not mentioned in this second article. However, these two articles highlight ongoing patterns even as the stores and brands change: some places have plenty of grocery stores (with Jewel and Mariano’s locations nearby) while others are not attractive to companies and residents have to search harder and further for food options.

Does this rapid pace of change suggest grocery stores will be quite different still in a few years? Can we imagine delivery only or virtual reality grocery shopping?

Why it can take months for rent prices to show up in official data

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It will take time for current rent prices to contribute to measures of inflation:

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To solve this conundrum, the best place to start is to understand that rents are different from almost any other price. When the price of oil or grain goes up, everybody pays more for that good, at the same time. But when listed rents for available apartments rise, only new renters pay those prices. At any given time, the majority of tenants surveyed by the government are paying rent at a price locked in earlier.

So when listed rents rise or fall, those changes can take months before they’re reflected in the national data. How long, exactly? “My gut feeling is that it takes six to eight months to work through the system,” Michael Simonsen, the founder of the housing research firm Altos, told me. That means we can predict two things for the next six months: first, that official measures of rent inflation are going to keep setting 21st-century records for several more months, and second, that rent CPI is likely to peak sometime this winter or early next year.

This creates a strange but important challenge for monetary policy. The Federal Reserve is supposed to be responding to real-time data in order to determine whether to keep raising interest rates to rein in demand. But a big part of rising core inflation in the next few months will be rental inflation, which is probably past its peak. The more the Fed raises rates, the more it discourages residential construction—which not only reduces overall growth but also takes new homes off the market. In the long run, scaled-back construction means fewer houses—which means higher rents for everybody.

To sum up: This is all quite confusing! The annual inflation rate for new rental listings has almost certainly peaked. But the official CPI rent-inflation rate is almost certainly going to keep going up for another quarter or more. This means that, several months from now, if you turn on the news or go online, somebody somewhere will be yelling that rental inflation is out of control. But this exclamation might be equivalent to that of a 17th-century citizen going crazy about something that happened six months earlier—the news simply took that long to cross land and sea.

This sounds like a research methods problem: how to get more up-to-date data into the current measures? A few quick ideas:

  1. Survey rent listings to see what landlords are asking for.
  2. Survey new renters to better track more recent rent prices.
  3. Survey landlords as to the prices of the recent units they rented.

Given how much rides on important economic measures such as the inflation rate, more up-to-date data would be helpful.

Robot vacuum as mapper and research tool for homes

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The Roomba may also be a cartography tool to map homes:

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The company announced a $1.7 billion deal on Friday for iRobot Corp., the maker of the Roomba vacuum cleaner. And yes, Amazon will make money from selling those gadgets. But the real value resides in those robots’ ability to map your house. As ever with Amazon, it’s all about the data…

The Bedford, Mass.-based company’s most recent products include a technology it calls Smart Maps, though customers can opt out of sharing the data. Amazon said in a statement that protecting customer data is “incredibly important.”

Slightly more terrifying, the maps also represent a wealth of data for marketers. The size of your house is a pretty good proxy for your wealth. A floor covered in toys means you likely have kids. A household without much furniture is a household to which you can try to sell more furniture. This is all useful intel for a company such as Amazon which, you may have noticed, is in the business of selling stuff…

Amazon would not be alone in wanting to map your home. Apple Inc. also unveiled a tool in June for the next release of iOS, its mobile operating system, that uses the laser scanner on the latest iPhones to build 3-D models that it’s dubbed “RoomPlan”.

While I can imagine the commercial potential of this mapping (beyond retailers, this can be very useful for real estate businesses as well), I am also interested in the research potential. Such mapping could reveal how residents use space, floor plans, and people and pets moving through areas. Rather than relying on people’s reports on their interior activity or direct observations of this, the Roomba can be the research “eyes.” Equip it with a camera, microphone, and other sensors and it could collect all sorts of information (all agreed to by the research participants, of course). A vacuum and research device, all in one.

Tax breaks and suburban and Sunbelt growth

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Wells Fargo is seeking a tax break to construct a regional office in suburban Irving, Texas:

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The Irving City Council will vote Thursday on millions of dollars in economic incentives to support the huge campus that’s expected to house 4,000 workers…

The agreement with Irving calls for Wells Fargo to “occupy at least 800,000 square feet of office space in the newly constructed buildings by December 2026. The proposed new office development would serve as a regional hub for Wells Fargo.”…

Irving proposes in its economic incentive agreement to give Wells Fargo up to $19 million in tax increment finance district funds to build a 4,000-space parking garage and “to reclaim a portion of the lake between the two adjacent parcels on the south side of Promenade Parkway.”

A separate economic incentive of up to $12 million would support construction of the Wells Fargo offices.

The project will increase the city’s tax “property value by a minimum of $200,000,000,” according to the City Council filings.

I can imagine the argument from Irving and similar communities about why the tax breaks are worth it:

  1. Such a move helps entice national and international brands to your community.
  2. Such a move brings jobs to the community.
  3. The tax breaks will be outweighed by the tax and physical improvements to the property in question.

All of this helps boost the status of the suburb and the economic prospects in the community.

On the other hand, tax breaks have downsides:

  1. Lots of communities offer tax breaks. The company may be less interested in this specific community and more interested in how much money they can get from a community.
  2. Less money will come into the community than if no tax breaks were offered.
  3. At some point, the tax breaks run out and then what happens to the company and the newly developed property?

As the title of this post asks, how much development in suburban areas like Irving involves tax breaks? Would Wells Fargo locate in Irving or in the region without tax breaks?

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